TALLINN - Forecasts by the Estonian government that it can shave its budget a further 0.5 percent from the current 8 percent is unrealistic, according to Hejdo Vitsur, an Economics Development Fund expert.
The reason for the current forecast comes not because the situation in Estonia has radically changed in recent months but because of the sharp deterioration of forecasts in an environment.
According to Vitsur in developing countries with falling economies it was possible to start thinking about budget reductions of between 5 and 7 percent rather than the expected 2 to 3 percent.
A couple of months ago there was the hope the economy would start to recover by the end of this year. The expectation is that real improvement will not be seen before 2011.
However, if the government continues to priorities economic recovery according to euro adoption, than a second additional budget was not a realistic tool, said Vitsur.
He said a budget reduction would not improve the current situation, and that it would be better to develop vital infrastructure, as well as find new ways of cooperation with investors to reorganize the enterprise environment as a whole.
Vitsur also added that the situation was especially complicated as measures undertaken for transition to euro is totally inconsistent with the government's short-range plans.
He considers that for fulfilling the so-called Maastricht criteria for euro adoption should no longer be an obstacle.
Stabilizing the budget should also be a priority, he said, adding that acceptance of a second additional budget by summer or in the coming years could potentially save on billions of kroons in expenses.
The main problem remains the level of accuracy in economics forecasts.
He also mentioned the latest economic forecast raised doubts as it was based on the precondition that recession is no longer a threat to the Estonian economy.
In reality, however, Estonia's economy remains weak, even though foreign trading partners believe the situation will improve by 2011
According to Vitsur undertaking the criteria would not necessarily mean automatic transition to euro.
"It is not excluded that to cover the operational expenditure of the state we would need to raise taxes. But where it is more important for us than the investment, improving labor productivity and strengthening support of local businesses," said an internet portal release on April, 9.
Given the Ministry of Finance's gloomy spring forecast has predicted continued economic recession and that Estonia's gross domestic product has already decreased by about 9.7 percent, an 8.5 percent budget reduction seems unrealistic.